07.22.08
What brought down the Soviet Union?
From Ken Deffeyes’s Beyond Oil:
Who gets credit for causing the collapse of the Soviet Union?
a. Ronald Reagan, for promoting Star Wars
b. the pope, for being Polish
c. Mikhail Gorbachev, for allowing dissension
d. the KGB, for abusing people
e. Saudi Aramco, for lowering oil pricesStephen Kotin points out that the Soviet Union, up to 1985, was exporting two million barrels of oil per day. The hard currency from oil allowed the Soviets to import items that were internally in short supply, from electronics to soap. At that time, Soviet oil production was larger than Saudi production by a factor of three, but Saudi Aramco had much lower production costs. Saudi Aramco resorted to a familiar tactic: a price war. They flooded the world with oil and drove the world price of crude oil below the Soviet cost of production and transportation. The severe shortages of everything that developed within the Soviet bloc are illustrated by this story:
A Polish businessman is going on a trip to Moscow and his wife asks him to bring back notes about the shortages in Russia. He goes into a butcher shop, and there are only a few little scraps of salt pork, so he writes in his notebook: NO MEAT. He then goes into a greengrocer and writes NO VEGETABLES. A shoe store: NO SHOES. After several more shops, a man stops him on the street and asks, “Are you spying for the CIA?” The businessman explains that his wife asked him to take notes. “Don’t you know that ten years ago you would have been shot for doing this?” He writes: NO BULLETS.
After six years without hard currency, the Soviet Union collapsed. Control of the world’s dominant energy source carries enormous power.
